Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), has held that the Adjudicating Authority cannot invoke Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC), when the ingredients of Section 66 (fraudulent or wrongful trading) are not established.

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Background

The appeal was filed by Sudhir Dinanath Chatutvedi challenging the order dated January 22, 2025, passed by the NCLT, Mumbai Bench, in I.A. No. 1305/2020 in C.P. (IB) No. 2392/MB/2019, filed by the liquidator of Adya Oils & Chemicals Ltd. The Adjudicating Authority, while admitting that the requirements of Section 66 were not met, nonetheless allowed the liquidator’s application by exercising its general powers under Section 60(5) of the IBC, citing fraudulent conduct by certain respondents. The liquidator had sought multiple reliefs, including a declaration that the loan transaction with IDBI Bank was fraudulent, initiation of investigation under Section 66, directions for obtaining title and clearance reports, payment of stamp duty and conversion charges by financial creditors, and removal of an obstruction wall at the factory premises.

The NCLT, while observing that the case may not explicitly fall under Section 66, invoked its powers under Section 60(5) to take cognizance of alleged fraudulent conduct and allowed the application. Aggrieved, the appellant filed the present appeal before the NCLAT, contending that the Adjudicating Authority had acted beyond its jurisdiction.

Contentions

The appellant argued that when the Adjudicating Authority itself held that the requirements of Section 66 were not satisfied, it could not have proceeded to allow the application under Section 60(5) of the IBC. It was further contended that the prayers (b) to (d) in the liquidator’s application were directed against the financial creditors, not against the appellant, and therefore could not have been allowed in proceedings involving him.

It was also pointed out that the loan transaction in question was entered into with the financial creditor in 1998, long before the commencement of the CIRP in 2019, and was subsequently assigned to the Stressed Assets Stabilisation Fund (SASF). Hence, such a transaction could not fall within the purview of proceedings under Section 66, which applies to conduct during the insolvency resolution or liquidation process.

The respondent-liquidator, on the other hand, contended that findings of fraudulent conduct had already been recorded in previous applications, which were not challenged by the appellant. It was argued that the NCLT had rightly invoked Section 60(5) to ensure that such conduct did not go unaddressed.

Tribunal’s Observations

The NCLAT examined the impugned order and observed that the Adjudicating Authority had categorically recorded that the ingredients of Section 66 were not made out in the application. Despite that, it proceeded to allow the same by invoking Section 60(5), which, according to the Appellate Tribunal, was without justification.

The Bench noted that Section 60(5) confers residual jurisdiction upon the Adjudicating Authority to decide questions arising out of insolvency proceedings, but it cannot be invoked to override specific provisions of the Code, such as Section 66, particularly when the statutory ingredients of those provisions are admittedly not satisfied. The NCLAT observed: “When the Adjudicating Authority has itself returned a finding that the ingredients of Section 66 are not made out, there is no justification in allowing the prayers made in the application. The impugned order, to that extent, is unsustainable.”

It further found that several of the reliefs sought in the liquidator’s application, including those relating to title reports, stamp duty, and conversion of property, were directed against financial creditors and did not concern the appellant. Therefore, such directions could not have been issued in the proceedings in question. The Bench also clarified that the impugned order pertained only to I.A. No. 1305/2020 and would not affect other pending applications or proceedings before the Adjudicating Authority.

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The NCLAT held that since the Adjudicating Authority had admitted the non-fulfilment of Section 66 requirements, it could not have resorted to Section 60(5) to grant reliefs under the guise of addressing fraudulent conduct. Accordingly, the impugned order dated January 22, 2025, was set aside, and the appeal was allowed. The Appellate Tribunal clarified that the order would be confined to I.A. No. 1305/2020 and would not impact other cases.

Appearance

For Appellant: Mr. Chirag Mody, Mr. Minesh K. Shah, Advocates

For Respondent: Mr. Ravi Raghunath, Advocate

Cause Title: Sudhir Dinanath Chatutvedi vs. True IPE LLP & Ors.

Case No: Company Appeal (AT) (Insolvency) No. 540 of 2025

Coram: Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member)